There’s No Such Thing As Corporate Tax

The EU reaffirmed its commitment to fighting corporate tax avoidance through a statement by European Commissioner Pierre Moscovici. This should come as no surprise following recent financial scandals exposed through the Panama Papers and Luxleaks, and the ensuing international outrage towards corporations “not paying their fair share”. Yet, the push for higher corporate taxes disproportionately also affects ordinary citizens by increasing their tax burden.

Corporate tax avoidance is regularly said to be unfair to other taxpayers. Indeed, proponents of higher corporate taxes accuse multinational companies of de facto increasing ordinary citizens’ tax burden because these ones would be forced to compensate states’ budget shortfalls.

However, this artificial opposition between corporate and public interests is dishonest. When one argues corporations don’t pay taxes, the implication is that shareholders, workers and consumers are not taxed at all, which is completely untrue. All these people are taxed in various ways, including income tax and valued-added tax, among other costs imposed by national governments. The only purpose of this distinction is to push ordinary citizens to support higher corporate taxes without allowing them to realise they are the ones who are going to pay the bill.

In fact, a corporation is a legal fiction which aims to reduce transaction costs between physical stakeholders, which are shareholders, workers and consumers. Consequently, every fiscal cost imposed on corporations will necessarily be paid by these people. Therefore, as corporate taxes increase, shareholders’ dividends and workers’ salaries will decrease, while consumers will be forced to pay more for their purchases.